- 1). Consult with the lender about their refinancing options. You may be able to find superior deals on refinancing from third-party finance companies. Mortgage refinancing involves taking on a second mortgage or personal loan at a lower rate than the first mortgage to make payments on either the interest, the principal or both.
- 2). Determine the risk tolerance of your household. Regardless of what might be told to you about mortgage refinancing, it is an additional risk, as it is increasing the overall debt burden of the household, at least temporarily.
- 3). Compare refinancing to other options for reducing interest payments. Paying back the principal of the original mortgage both reduces the size of monthly interest payments--although it will not affect the rate--and increases the homeowner's share of home equity.
- 4). Read the agreement carefully to see if the payments will be reduced even if the interest rate is raised to the maximum amount delineated by the contract. Sometimes, refinancing involves taking on an adjustable rate second mortgage that could end up being raised much higher later during the life of the loan.
- 5). Calculate the break-even period for the mortgage refinancing. It takes years, most of the time, for a mortgage refinancing to actually pay off. Don't take marketing material at face value. Verify how soon it will take your household to see a benefit from the loan independently.
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